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151. Agreement needed on liquidity provision to restore confidence in the eurozone

Author:
Stefano Micossi
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Some eighteen months after the first Greek rescue (May 2010), there is little doubt that the multiple attempts at crisis management in the eurozone have failed to restore confidence. Indeed, following each round of emergency measures agreed by the eurozone summits, matters have turned for the worse (see Figure 1 for the widening spreads, over the German Bund, for sovereign borrowing in the eurozone). At the time of writing, contagion has spread beyond Spain and Italy to the core sovereigns, with France close to losing its triple A rating and even Germany experiencing partial failure in a Bund auction on November 23rd. Spreads are also opening up for Austria, Belgium, Finland and even the virtuous Netherlands. Meanwhile, the banking system Europe- wide is under increasing strain, with term funding all but closed for any bank with significant exposure to distressed sovereign debtors and the interbank market close to seizing up. Deposit withdrawals have surfaced in a number of large banks from the periphery. The euro has started to weaken in foreign exchange markets, narrowing the room for a distinction between eurozone debt crisis and euro-currency crisis from which some observers were until recently drawing comfort.
Topic:
Economics, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe and Germany

152. Chinese Perspectives on International Power Shifts and Sino-EU Relations (2008–2011)

Author:
Nele Noesselt
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
With the beginning of the post-Maoist era, the focus of Chinese foreign policy shifted from ideology and revolution to pragmatism and reform. Chinese scholars in the field of International Relations (IR) are now encouraged to develop abstract scientific analyses of China's international environment. This requires not only the handling of IR theories and methods of foreign policy analysis (FPA), but also a sound knowledge of the organizational structures and policy principles of other states.
Topic:
International Relations, Foreign Policy, and Financial Crisis
Political Geography:
China and Europe

153. US Lessons for the Eurozone: Restoring Confidence through Transparency

Author:
Julie Chon
Publication Date:
12-2011
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
When it comes to resolving financial crises, size matters, but so does transparency. In both the US and European crises, the drive for size—firing off enough public funds to plug the hole in the financial system—has proven to be self-defeating as markets raise ever higher, unrealistic, and inappropriate expectations for government policy. This strategy addresses some of the economics and none of the politics of crisis management. The race to meet the size test distracts policymakers from addressing the real impediment to restoring investor and public confidence: the inherent uncertainty and lack of transparency associated with extraordinary government actions in times of crisis. The absence of transparent decision-making inflicts a costly blow to the credibility of policymakers because markets and citizens cannot see or believe what leaders are doing to stabilize the financial system.
Topic:
Debt, Economics, International Trade and Finance, and Financial Crisis
Political Geography:
United States and Europe

154. Mapping the Economic and Financial Future

Publication Date:
07-2011
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
In 2008 and 2009 political and business leaders scrambled to stabilize the financial system and avert a slide into world-wide depression as a financial crisis of historic proportions spread across the globe. A series of bold emergency measures succeeded in defusing the crisis, and these same leaders began searching for ways to avoid a similar breakdown in the future. At the same time, the effort to restart economic growth and job creation began in earnest.
Topic:
Economics, International Cooperation, International Trade and Finance, and Financial Crisis
Political Geography:
United States and Europe

155. Too Big to Fail: The Transatlantic Debate

Author:
Morris Goldstein and Nicolas Véron
Publication Date:
01-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by "too big to fail" financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.
Topic:
Economics and Financial Crisis
Political Geography:
United States, America, and Europe

156. Currency Wars, Then and Now

Author:
Liaquat Ahamed
Publication Date:
03-2011
Content Type:
Journal Article
Journal:
Foreign Affairs
Institution:
Council on Foreign Relations
Abstract:
The aftermath of the Great Depression saw a burst of competitive currency devaluations and protectionism that undermined confidence in an open global economy. As countries recover from the financial crisis today, they need to heed the lessons of the past and avoid the beggar-thy-neighbor policies of the 1930s.
Topic:
War and Financial Crisis
Political Geography:
Europe

157. Is the recovery sustainable in the US and Europe?

Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
Following the worst recession since the 1930s, the US, UK and Eurozone economies have all now returned to positive growth. With the boost from policy stimulus and the inventory cycle peaking, however, this raises questions about the sustainability of the current rebound. The analysis presented here suggests that the recoveries in both the US and Europe will be relatively muted compared to recent historical experience. The US is likely to be the growth leader, reflecting the more dynamic nature of its economy and financial sector. A key uncertainty relates to how labour markets will perform during the recovery phase. To date, the rise in US unemployment been particularly severe when compared to the experience of Europe. In light of the sharp falls in European productivity, we expect employment gains in Europe to be more muted in the recovery phase than in the US. The performance of residential real estate markets also remains important. Home prices in the US are now close to fair value by most metrics, suggesting that the correction in prices is likely to be bottoming out. In Europe, only Spain and Ireland appear to be in the midst of substantial housing market corrections. Commercial real estate markets are also facing ongoing corrections in many countries. While conditions in the US and Eurozone may deteriorate further, commercial property values appear to be stabilising in the UK following earlier sharp declines. The ability of the banking sector to finance the economic recoveries in the US and Europe remains a key risk to the growth outlook. As the process of absorbing credit losses and rebuilding capital is likely to be protracted, the normalisation of lending standards is likely to take longer than following recent recessions. This is a particular concern for the Eurozone, where bank funding is more important for companies. Whether domestic demand in the US and Europe recovers will also depend on whether private sector deleveraging has further to run. The destruction of household net wealth in the US suggests that the personal savings rate has further to rise, whereas there no longer appears to be a pressing need for households in the UK and Eurozone to consolidate their balance sheets. In contrast, non-financial corporations in the US are in a stronger financial position than their European peers, having not increased debt levels as rapidly during the credit boom. Risks around public finances have received the most attention in recent weeks. In particular, the adjustments underway in Greece pose a risk of potential contagion from sovereign credit risk that could threaten growth on both sides of the Atlantic.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States, United Kingdom, and Europe

158. What reforms for the credit rating industry? A European perspective

Author:
Karel Lannoo
Publication Date:
10-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Credit rating agencies (CRAs) continue to find themselves in the eye of the storm. Despite having singled out the industry early on in the financial crisis as needing more regulation, policy-makers seem not to be reassured by the measures that have been adopted in the meantime, and want to go further. Faced with a rapid downgrading in ratings in the context of the sovereign debt crisis, European Commissioner Michel Barnier raised the possibility last May of creating a new EU-level rating agency that would specialise in sovereign debt.
Topic:
Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
Europe

159. Has the financial crisis spurred demand for stronger state regulation?

Author:
Felix Roth
Publication Date:
09-2010
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper analyses whether the financial crisis has affected citizens' confidence in the free market economy and whether it has triggered citizens' demand for a free market economy with stronger state regulations. Using panel data, the paper confirms that citizens' confidence levels in the free market economy have decreased in most of the largest economies and demand for a free market economy with stronger state regulation has increased on both sides of the Atlantic. After analysing the determinants for citizens' confidence in the free market economy and demand for a free market economy with stronger state regulation before and after the financial crisis, the author concludes that citizens' net confidence loss in the free market economy seems to have been driven by rising unemployment rates, and citizens' demand for stronger state regulation seems to have been driven by the real economic downturn in GDP growth.
Topic:
Regional Cooperation, Monetary Policy, Financial Crisis, and Governance
Political Geography:
Europe

160. Fiscal Policy Coordination and Competitiveness Surveillance: What solutions to what problems?

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
09-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
In June 2010, both the European Commission and the European Central Bank published documents containing ideas for enhancing European economic governance. Both proposals stress the need for stronger surveillance on a country-by-country basis and the effective enforcement of surveillance through incentives and a wider spectrum of sanctions.
Topic:
Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe